More pendulum prattle

In my column on Sunday, I talked about the Pendulum Pack, the group of business lobbyists and others, including Treasury Secretary Hank Paulson, who are agitating to water down Sarbanes-Oxley. Today’s Wall Street Journal has this story ($) about the accounting industry’s related efforts to get the government to protect it from class-action lawsuits.

Now Sarbanes-Oxley has been a boon to auditing firms, but they nevertheless worry that a big class-action award will cripple them. Keep in mind that Arthur Andersen, at the time of its conviction, had weathered four of the five biggest civil judgments in the history of public accountancy, yet it not only continued to audit companies like Enron and WorldCom, it didn’t even feel those judgments warranted a major change in its practices.

So the accounting industry’s whining rings false. What’s more, as the Journal story points out, the number of class-action cases against accounting firms has actually been falling, a fact largely ignored in the lobbying effort.

The number of class actions that cite auditors as defendants declined to five last year from 14 in 2002, according to the Stanford Law School Securities Class Action Clearinghouse.

All of this seems to be an attempt to use the pendulum argument to offer favors to an industry that really doesn’t need or deserve it. As the Journal reports:

“I don’t see that auditors have a real need for any kind of special protections,” said Bill Kelley, general counsel at the Retirement Systems of Alabama, which has sued accounting firms following corporate blowups. “Auditors need to be held to a high standard. Those are the outsiders we rely on. It’s tough to have that responsibility, but that’s what they’re getting paid for.”

It’s called accountability. That’s something the industry should be able to understand.